Mohan R.

Lavi

Mohan R. Lavi on a recent announcement on

audit in the case of incomplete or missing
records

APART from issuing Accounting Standards,

the Institute of Chartered Accountants of
India (ICAI) announces clarifications on and
amendments to them. The Institute also
issues Auditing and Assurance Standards
(AAS) and puts out Guidance Notes and
opinions of expert advisory committees. It
was, therefore, a bit perplexing to see
"Announcement" after clicking on "Audit in
case of incomplete or missing records" on the
Institute's Web site. Perhaps, the spate of
natural calamities prompted it to do so.

The Announcement states that while carrying

out audit assignments, the members of the
Institute may come across situations where
the records of the client are either completely
or partially destroyed on account of a natural
calamity or otherwise.

The Announcement states that AAS 28, `The

Auditors Report on Financial Statements',
`Statement of Qualifications in Auditors'
Report', opinions of Expert Advisory
Committees and the `Study on Audit and
certification in case of missing Records' more
than take care of the situation; and that the
announcement is being made as a
precautionary measure. This still does not
explain the rationale for the announcement
as there is so much literature on the subject.

The first thing that an auditor is supposed to

do in such circumstances is to obtain a
representation from the management that the
original records are not available. In future,
one can expect the audit report to contain a
statement that the auditor has examined the
books and records and the representation
letter from the management. This letter is
supposed to also state whether the accounts
have been reconstructed — not an apt word
under the circumstances — by the
management. In case they have been
reconstructed, the management has to state
the extent of reconstruction while the auditor
has the difficult task of considering the
limitation in scope because of these
circumstances. Such limitation arises owing
to the management's inability to do a
complete reconstruction job and the lack of
corroborative evidence.

The Announcement goes on to state

something that is becoming a bit familiar
these days — in case there is a limitation in
the scope of the audit due to the above
circumstances, the auditor has to use his
professional judgment to ascertain whether
he has to issue a qualified opinion,
unqualified opinion or disclaimer of opinion.

The auditor can also be guided by AAS 13

(Audit Materiality), wherein materiality and
audit risk involved with specific account
balances should be the priority for the
auditor. The ICAI has an alternative for the
lack of corroborative evidence — inquiry and
external confirmations. The Announcement
goes on to give examples of qualified audit
reports under different circumstances.

The concluding portion of the Announcement

states that where the accounts have been
seized by the income-tax authorities and
returned after four years, the auditor is not to
rely on the representation given by the
management unless the information can be
corroborated by other evidence.

This diktat appears to be against the spirit of

the Announcement, since the auditor has the
option to give a qualified/unqualified opinion
or a disclaimer of opinion even in such
circumstances. The reason for not relying on
the management because the records were
in cold storage in the I-T Department does
not appear convincing.
The ICAI has issued quite a number of expert
advisory committee opinions, guidance
notes, Accounting Standards and AAS over
the years. Maybe it is time to aggregate and
group all these under convenient Accounting
Standards, on the lines of the Master
Circulars issued by the RBI.

(The author is a Hyderabad-based chartered

accountant.)
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